Deutsche Bank held contractual agreements with third-party investment advisers who provided financial services to firm customers through the firm’s adviser select program for a fee the customers paid, and the firm customers granted discretionary trading authority to the third-party advisers. The agreements contained a confidentiality clause prohibiting firm employees from using the third-party advisers’ portfolio recommendations for other clients.
The firm instituted a written policy and procedure manual distributed to firm employees, including Tubridy, that contained guidelines related to the adviser select account and prohibited shadowing adviser select accounts, but the firm did not implement any specific systems to detect and prevent shadowing; no exception reports were created to identify shadowing, no applicable training was conducted, and no supervisory systems were put in place to monitor accounts for possible shadowing.
In one branch office while Tubridy was responsible for performing trade reviews, shadowing was egregious and continued for years. Although the firm did not implement exception reports to identify shadowing, shadowed trades were flagged for other reasons, which required Tubridy to follow up; she examined and approved shadowed trades on the exception reports, made notations on certain trades, which indicated an awareness of shadowing, but failed to follow up on the information and neglected to raise the issue with compliance or her supervisors.
Through shadowing, firm registered representatives circumvented the fee arrangement the firm had in place for the adviser select program and violated the provisions of confidentiality agreements prohibiting the use of the third-party investment advisers’ proprietary information. In addition, the firm and involved registered representatives failed to pay a combined total of over $200,000 to third-party investment advisers. Moreover,the firm failed to establish, maintain and enforce an adequate supervisory system to detect and prevent shadowing, and Tubridy failed to recognize and follow up on “red flags” of shadowing.
Once the firm learned that shadowing had occurred, with Tubridy’s assistance, it conducted an extensive and immediate internal investigation across all branch offices to identify and halt any other shadowing activity.
Deutsche Bank Securities Inc.: Censured; Fined $350,000. In assessing the fine, FINRA took into account financial benefits the firm obtained, and the firm’s discovery, reporting, investigation and corrective measures are reflected in the sanctions.
Adrienne Barrett Tubridy: Fined $10,000; Suspended 10 days in Supervisory capacity only; Required to cooperate with FINRA in its prosecution of any other disciplinary action related to these events by, among other things, meeting with and being interviewed by FINRA staff without the need of staff to resort to FINRA Rule 8210, and testifying truthfully at any related hearing.